Llc

With all the new threads about buying or selling, I'm curious if you have your boat in an LLC or if you have thought about putting it in one.

Our boat is owned by a Delaware LLC with 2 members, myself and my wife. It provides a modest level of liability protection. It also enables the LLC to be sold, including the boat as an asset of the company, without additional sales taxes or the need to re-document, etc., because boat ownership does not change. If you already own the boat you need to be careful that you do not initiate a "sale" to the new LLC that results in additional sales tax etc.

Chrisjs- does the LLC need to file a tax return or any other reporting requirements?

Having your boat in an LLC should make a purchase more appealing to a buyer, all else being equal.

We do not need to file a federal or state tax return. We do not generate any income and do not claim any losses. We do not operate the LLC as a charter business. We do pay an fixed annual Delaware LLC franchise tax of $250 and we pay an annual $50 Registered Agent (The Corporation Company) management fee.
I would hope this is an attractive arrangement for a buyer. We are presently trying to sell our Selene 47.

drb1025 said:

With all the new threads about buying or selling, I'm curious if you have your boat in an LLC or if you have thought about putting it in one.

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We look at it! For those to do not know what a Lic or LLC is, its a separate legal entity, that owns the boat and protect you legally. Many attorneys/doctors/ profession people have/are Lic/LLC. We did buy the Eagle as a commercial rather than pleasure and we did take out a business license. However we did not charter and/or use it for business /commercial so not need for a Lic/LLC. However, being registered as a commercila allows us commercila discounts and priority though the bridges and locks, and the tabs cost far less the plesure. Many of the larger mega yachts are Lic/LLC for legal and tax reasons. We might if we decide to charter for liability reasons.


However we are presently doing/looking at irrevocable and revocable trusts, to transfer assets/funds out of our personal estate, protected legal and taxed separatly. We would not transfer the Eagle into the trust as we plan on selling it, but things of value that we plan of keeping. We plan on dieing homeless and poor.

Phil Fill said:

We plan on dieing homeless and poor.

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That's exactly what we are doing. Only thing left is the business, a couple of cars and the boat.

Within the next few years business will be transferred to a couple of the kids, who work in the business and we may just find an island somewhere to hang until it's over for us.

I'm not a lawyer but LLCs were explained to me this way... at least in New Jersey.

LLCs don't protect the owners as well as you think....if you are driving/in command of your own boat...you can be held liable as well as the LLC. You would be safer if it was being driven by a pro captain as they would be liable and the LLC thus shielding your assets better.

psneeld said:

I'm not a lawyer but LLCs were explained to me this way... at least in New Jersey.

LLCs don't protect the owners as well as you think....if you are driving/in command of your own boat...you can be held liable as well as the LLC. You would be safer if it was being driven by a pro captain as they would be liable and the LLC thus shielding your assets better.

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The only way the suing person can "pierce the corporate veil" is if you were grossly negligent. For example: there was a fuel leak that you knew about but failed to get fixed and the boat caught on fire and someone was injured, or you were operating the vessel under the influence.

yes...but you can spend a fortune defending yourself anyway...and proving someone grossly negligent is seemingly getting easier.

I am a businessman and actually spent time with my CPA who's husband is a commercial fisherman and discussed the LLC concept, and its tax advantages.

In short, there are zero federal tax advantages of forming a LLC to own a boat.

There might be some state tax advantages depending on the states rules regarding the sale of a "business".

For example if a state charges sales tax on tangible property, but not on the sale of a business then then theoretically the sale would not be taxable.

Unless...

The state could show that the LLC was not acutally a business. A state could apply the IRS definition of a business which to paraphrase is An entity which through its actions has a reasonable expectation of making a profit.

As far as the liability aspect, I cannot comment on that much, except that if I were a lawyer arguing a liability case I'd make the same argument as above. A business that generates no revenue, and has no expenses is not a business, therefore should not be afforded the protections granted to owners of actual corporations. I do not know how that would come out, I am not a lawyer, but I would not want to try it out.

High limit insurance is not very expensive. On my policy I think going from 300K to 1M liability added one or two hundred dollars to the annual cost.

There are many advantages to having your boat in an LLC, S corporation, or a Schedule C as long as you attempt to use it as a business. Nothing says you have to turn a profit!

With a 10% sales tax in Washington state, an LLC can potentially save a bundle for the purchaser. Liability is less of a concern because as one poster said, insurance is relatively inexpensive and the risk is low. Estate planning is also facilitated with an LLC as transfer of ownership is simple and straightforward.

windmill29130 said:

There are many advantages to having your boat in an LLC, S corporation, or a Schedule C as long as you attempt to use it as a business. Nothing says you have to turn a profit!

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Actually, according to my CPA that is not true.

I paid her to discuss legal ways to tax advantage the boat, IE "write off" either the boat itself, or its expenses.

Understand that I also have a fully functional profit making corporation that my admrial and I own, so we had several different avenues to explore.

There are a couple of ways to legally tax advantage a boat, but if you do not make a profit in a reasonable time frame then you're flagging yourself for an audit, and the IRS can and will dissallow expenses claiming that the business is a hobby.

First way would be to charter the boat out. You buy a boat and make a good faith effort to turn it into a charter business. You as a person are a customer of that business and pay the business for use of the boat. You could take the boat out on "maintenance cruises" a couple times a year and actually write off those expenses as well.

The problem is chartering requires a licensed captain, or letting someone bareboat the boat. It requires marketing, and all the things that make a business a real business.

If you do not make a profit then after a very few years the IRS will dissallow the "business loss" against your personal income.

The next way would be to use the boat to entertain clients and even employees. My accountant warned me strongly against this. If I had a larger business than ours she said it could become justifiable but not for us.

Another way would be to actually use the boat as part of the business. Both of my neighbors businesses own their private aircraft, and they use them as part of their construction businesses. My business is a wholesale electrical distributor so that will not work for me.

The ONLY audit defendable thing we figured out we could do was to add a satellite communications system to the boat so that I would be able to operate my business from the boat. We did that with the business purchacing the sat com gear and paying the subscription service fees. I actually use the sat com link for business functions while on the boat, so it is a justifiable expense, just like any other telecommuter setup.

As a tax lawyer, I have been asked the same questions KSanders asked his CPA and she gave him good advice. There is little to no real advantage to owning your boat in an LLC if you are not operating it as a business. There certainly is no income tax advantage. The liability protection that normally attaches to corporate ownership can be substantially lessened in a non-operating, single member LLC. Lessened to the point that it is not a reason to put the boat in an LLC. There can be advantages for estate planning purposes or for the purpose of parceling out ownership pieces to heirs before death. As noted in a previous post, there can be an advantage at sale in that you are selling the LLC interests not the boat, thus avoiding sales tax in many but not all, jurisdictions. In some jurisdictions, there may be an excise tax on the sale or exchange od the LLC interest and there is on real estate. However, there is also a disadvantage to the LLC purchase-a purchaser of the LLC interests not only acquires all the assets of the LLC, but all of the liabilities, known and unknown, as well. So, you could have spilt 500 gallons of diesel fuel 6 months ago, sold me your LLC, and then the authorities track down the source of the spill and I am on the hook for the cleanup costs, fines etc.

In short, I have never found a really good reason to advise a client to put his boat in an LLC.